NEW YORK—The nation's number one and two discounters traded spaces this morning as Wal-Mart reported weaker-than-expected first quarter earnings and Target posted a 26 percent profit gain, beating expectations. Adding further worry, Wal-Mart warned that results in the current second quarter would miss Wall-Street estimates, although it expects conditions to improve in the second half.

Wal-Mart is the nation's largest toy retailer and Target was ranked third in Playthings' annual survey of retailers, although it may currently have risen to second as Toys "R" Us was sold off and earlier rationalized some of its operations.

In its earnings release and pre-recorded earnings call, Wal-Mart blamed rising oil and gasoline prices along with cold temperatures and a wet spring season that tamped down discretionary spending.

However, some retail analysts also cited the retailer's increasing issues with execution and trend-right merchandising. Economists cited the striking differences in Target’s more affluent customer base, which was apparently better able to manage higher prices and energy demands.

In early trading, shares of the Bentonville chain fell almost four percent before showing signs of rebounding. Although a major component of the Dow, the stock index edged higher on the strength of other retail sales data.

Wal-Mart recorded a 13 percent gain in net profit at $2.5 billion, 58 cents per share, compared to $2.2 billion or 50 cents a share last year. Excluding one-time charges, EPS came in at 55 cents a share, a penny below analysts’ estimates. Total sales rose 9.5 percent to $70.9 billion, while same-sales increased an anemic 2.9 percent, below the company's own guidance of 3 to 5 percent.

"We are making the necessary adjustments and I anticipate better results in the second half of the year," said CEO Lee Scott.

Wal-Mart lowered its Q2 guidance to 63 to 67 cents a share.

By contrast Target recorded a 26 percent gain in net profits to $494 million, 55 cents a share, against last year's $392 million and 43 cents a share. Last year's results exclude sold off department stores.